Stock Market Reverses Where It Needs To...

By: Jack_Steiman

The market wasn't happy overnight due to the fact that we had some bad earnings reports from Texas Instruments Inc. (TXN), International Business Machines Corp. (IBM), and this morning, Goldman Sachs (GS). Futures on the Dow were down nearly 150 points at its lows. Not what the bulls wanted to see, and with 1060 as a pivot for lower prices, it got scary for the bulls when we saw 1056 being printed early on after we gapped lower. It was1040 here we come as IBM and Texas Instruments were showing no signs of reversing up from very deep selling early on. However, Goldman Sachs started to reverse and so did the market.

Gradually the market started to go even, and then, eventually, race up in to the close with all the major sectors finishing near the highs and in the green with nice gains overall. Strong reversal action signifying a bottom is in for the most part for the near-term. I didn't say long-term. I said short-term. We can hope it's long-term, but a step at a time for now. With today's reversal and with some good news from Apple Inc. (AAPL) in the overnight session on strong earnings, the market is set up for some higher levels. There is no way to know how much higher, and you should not expect too much because you'll probably be disappointed. I would say, though, that it would be surprising if we don't see some higher levels in the days and weeks to come. In the end, a strong day for the bulls with 1010 S&P 500 now, not something the bulls need to worry about for a while at least.

There are so many big reports left in terms of earnings. Tomorrow we get numbers from F5 Networks, Inc. (FFIV), Starbucks Corp. (SBUX), Eaton Corporation (ETN), Xilinx Inc. (XLNX), United Technologies Corp. (UTX), QUALCOMM Incorporated (QCOM), Intuitive Surgical, Inc. (ISRG), Baidu, Inc. (BIDU), and many others. Even though we have gotten past the biggest of the big in Goldman, Apple and IBM, there are plenty left that will move the markets. Some of these reports will be good. Some will stink up the joint. My point being, the market is not in the clear in terms of just buy away and count your cash. Not the case. Some nights will provide enough bad reports where the overnight futures get smoked pretty good.

On Thursday we get 3M Co. (MMM), Nucor Corporation (NUE), Amazon.com Inc. (AMZN), AT&T, Inc. (T), SanDisk Corp. (SNDK), and many others. You get the picture. The economy is still slowing; by the way, thus, you just can't get too happy about things folks. Please keep that in mind. There's only so many Apple's out there that can do what they do quarter to quarter and not be too affected by a slowing economic story. Some of these reports will be filled with words such as slowing, unclear, etc. This will not be good news for those stocks or the stock market. Keep perspective. We should be fine very short-term. Beyond that things could still get quite nasty.

The one thing I have noticed since this last move down began was how the MACD's on all the daily charts were behaving. On most stocks, and on basically all the index charts. All the previous four moves lower with force had impulsive or strong moves down on the MACD's. This latest one had no move down whatsoever. It started to feel as if the bears had run out of energy, and thus, the turn around today is not at all shocking to me.

The MACD behaved on this move down in a way bottoms are made for the short-term. If we move up some, as I expect, it'll be a case study to see how strong the MACD's move up or not. This change of character gave me hope when we saw a reversal in the behavior of this market for at least a while, but again, and I must continue to remind you of this, earnings overall aren't very good and neither are the economic reports, so please go nice and easy here.

Another decent sign for the bulls here were the strong hollow candles printed on stocks that were lower today, all of the different areas of this market. Hollow red candles show on balance buyers after the gap down opening, and off a down trend in place the previous week or so, that means we normally will get a reversal in fortune for those stocks. They should start to have more up days than down for the very near-term. That should begin immediately.

The best part is that the red hollow candles mostly closed on their highs showing real buying interest in these stocks, and thus, it seems the bears are tired for the short-term. Hollow candles are not significant if a prior trend wasn't down overall several days or weeks. However, these stocks did have straight down moves pretty much, thus, you need to give them their proper due and again, it suggests the worst is over for those stocks for short-term.

Look folks, nothing will be easy here, and although there are some good signs, please don't get overly aggressive. There are no signs that the real world is in recovery, thus, this more of an upside trend may not last very long at all, so please be extremely nimble and careful.

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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